House Near Consensus on National Franchise

Washington— Phone companies would receive a national franchise to build and operate multichannel-video systems under legislation agreed to in principle last Wednesday by key House lawmakers.

The bill, whose preparation is being led by Energy and Commerce Committee chairman Joe Barton (R-Texas), is focused on promoting competition to incumbent cable giants such as Comcast Corp. and Time Warner Cable, industry executives and Capitol Hill staff said.

Under the House bill, phone companies such as AT&T Inc. and Verizon Communications Inc. would not only be able to get a national franchise, which would speed rollout of their competing services, but would receive additional protections.

Coming to Terms: National Franchising Bill

A bill in the House of Representatives that could be drafted as early as next week would:

• Establish the parameters of what a national cable television franchise would constitute for phone companies

• Require national cable franchisees to pay 6% of revenue to local governments as compensation for use of public rights of way. Current law caps franchise fees at 5%.

• Require phone and cable companies to provide high-speed Internet access and transmission to voice, video and data service providers, without discrimination.

• Require cable companies to comply with existing franchise agreements until phone companies have signed up 15% of the customers in a given market for video services.

• Require cable companies to offer a uniform rate structure throughout a market, to prevent predatory pricing against phone companies.

CABLE STAYS LOCAL, FOR NOW

Among its key provisions, the bill would require cable companies to continue to operate under their thousands of existing local franchise agreements until phone companies have taken 15% of the customers in markets they serve. Cable companies also would be required to keep their rates uniform throughout a market, so that new entrants would not be subject to selective price discounting that could drive them out.

AT&T and Verizon spokesmen would not comment on the terms, because specific legislative language had not yet been developed.

That did not keep National Cable & Telecommunications Association president Kyle McSlarrow from urging House leaders to reconsider the terms of the bill, even before the draft became public.

“This is clearly a sweetheart deal for an industry that doesn’t deserve a special break and a competitive advantage over anybody, let alone the cable industry,” McSlarrow said in a conference call Thursday with reporters.

While a setback for cable, the agreement is only the first step in a long process in which cable-industry lobbyists will have ample opportunity to alter the terms of any franchising bill destined for the White House. McSlarrow said cable still wanted to work with Congress on passing a comprehensive bill that deregulated telecommunications in ways that would work “not just for us, but for our competitors, too.”

The House Subcommittee on Telecommunications and the Internet could vote on the bill as early as this week, McSlarrow said. Last Friday, a House aide said a vote that fast was unlikely because lawmakers would need time to review the staff-prepared legislation language.

If anything, the agreement demonstrated that House telecommunications policy leaders were unafraid to drive forward franchise reform just days after AT&T announced its $67 billion takeover of BellSouth Corp. With that deal, four of the seven “Baby Bells” created in the 1984 breakup of the American Telephone & Telegraph Co. could be reunited.

“The merger could be a bit of a distraction, but in the end won’t have a dramatic effect on franchise relief this year,” said Paul Gallant, a media analyst with Stanford Washington Research Group.

Senate Commerce Committee chairman Ted Stevens (R-Alaska), who is expected to unveil a bill in a few weeks, has said he supports cable franchising relief for the big phone companies. “I think we’ll have a bipartisan bill,” Stevens said last Thursday.

For cable, the agreement was a disappointment on several fronts.

Under a national franchise, phone companies presumably would be able to roll out video facilities where they want and when they want, meaning they would not be required to offer service throughout a community within any particular time. Because they had to meet buildout requirements, cable operators have argued that deep-pocketed phone companies should do the same and not be allowed to cream-skim.

A national franchise would also speed up competition, by allowing telcos to enter local cable markets without gaining prior approval from thousands of local communities.

The House agreement contained two provisions that have not received much public debate.

One provision would continue to subject cable operators to local franchising rules until phone rivals had reached 15% local video-market penetration.

A second provision would guard against predatory pricing tactics. As McSlarrow explained it, if a phone company is offering discounts to homes in one section of a franchise, the cable company couldn’t offer the same deal to those customers alone. Low prices could not be isolated to drive back a phone competitor in one part of the franchise area.

Under current federal law, cable operators must offer uniform rates in a franchise area if the local franchising authority is permitted to set the price of basic tier rates.

“Uniform pricing is big-government price control,” McSlarrow said. “Essentially, the effect of it would be to shield the Bell companies from competition.”

McSlarrow and House aides said that cable would need to continue to comply with the uniform rate rule, even if the 15% test had been met and the cable company no longer needed a local franchise.

THE 15% TEST

Capitol Hill staff members contacted by Multichannel News also could not describe the 15% test — whether it meant 15% of local, state or national households or whether the market included all households, all TV households or all pay-TV households.

Under current law, a cable operator no longer faces regulation of basic-tier video rates and is no longer required to offer uniform rates within a franchise area if pay-TV competitors combined serve more than 15% of households in that territory.

In the Telecommunications Act of 1996, Congress added a provision that said a cable company was freed from price regulation and exempt from the uniform rate rule as soon as a phone company offered video service by any means other than by direct-to-home satellite service. No penetration test applied.

McSlarrow said the House bill taking shape would reverse the deregulatory approach Congress adopted in 1996, and any attempt to codify a lopsided competitive advantage into law would be fought.

“We’re not going quietly. We’re here. Get over it. We’ll meet you in the marketplace and we’re not going to let you pass laws that give you a subsidy, a gift, whatever you want to call it, that gives you a regulatory advantage,’’ McSlarrow said Friday.